You are considering three stocksA, B, and Cfor possible inclusion in your investment portfolio. Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of 0.30.

Rank these stocks from the most risky to the least risky.

If the return on the market portfolio increased by 12%, what change would you expect in the return for each stock? If the return on the market portfolio decreased by 5%, what change would you expect in the return for each stock? If you believed that the stock market was getting ready to experience a significant decline, which stock would you probably add to your portfolio? Why? If you anticipated a major stock market rally, which stock would you add to your portfolio? Why?